Snared in shakedown lawsuits

Correa

By Lou Correa

A few bad apples are abusing an important consumer rights law and the result is that ordinary, honest, hard-working small business owners are being coerced. Mom-and-pop businesses --- such as auto body shops, nail salons, travel agencies, restaurants and video stores --- are finding themselves in the crosshairs of renegade attorneys abusing consumer protection laws to squeeze big settlements from small business owners who are least able to defend themselves.

At the center of the storm is a section of the California Business & Professions Code considered a cornerstone of the states consumer protection laws. Section 17200 permits prosecutors and private attorneys to claim that a business is acting 'unfairly' and then sue.

Used properly, the section is an essential consumer protection law.

But that is not what is happening. Unscrupulous attorneys are filing trivial 17200 suits and then offering to drop legal action in exchange for settlements that typically range from a few to several thousand dollars. This looks like nothing more than a shakedown.

Failure to respond to a suit within 30 days can lead to an automatic judgment against any operator, no matter how frivolous the allegations.

Major interest groups throughout California are condemning the abusive shakedown tactics. The president-elect of the Consumer Attorneys of California describes these tactics as "unacceptable" and 'despicable.'

Similarly, the president of the Civil Justice Association of California (CJAC), a tort reform group often at odds with the Consumer Attorneys, says, 'We're seeing an outrageous abuse of the legal system.'

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Many of the shop owners being hit are new Americans who have limited English-speaking abilities. On Nov. 26, a Beverly Hills law firm, the Trevor Law Group, filed lawsuits against approximately 1,000 restaurants in the Los Angeles area.

Major targets in the suit are operators of family-run Chinese restaurants. Other law firms are also involved.

According to the president of the California Restaurant Association (CRA), 'Many of those targeted individuals are small independent operators who could easily be saddled with devastating financial burdens defending these accusations on their own.'

A common thread in the 17200 suits is that they begin with very few shops in the original filing, but are amended later to add other businesses. Thousands of additional businesses can be added to the suits.

In August, Trevor and Associates filed a similar suit aimed at auto shops. That suit lists 30,000 'Does.' The 'Does' are essentially blank spots in the suit that can be filled in later with other businesses.

Over 1,400 'Does' in the auto body suit have been named so far, including companies that long ago went out of business. A large number of these suits are aimed at Asians, Latinos and recent immigrants.

The lawsuits against auto body shops are what got my attention about these apparent shakedowns. My constituents and other defendants contacted me, and they all had similar requests for help: 'We are family business people. We are confused and do not know where to turn.'

The legislature must ensure that shakedown lawsuits are stopped. I am committed to holding legislative hearings to investigate the problem, and I have introduced Assembly Bill 69 in order to enact solutions. I am cautiously optimistic and encouraged by the fact that diverse and often divergent interest groups appear to recognize the need for real reform.

Lou Correa is chair of the Assembly Business and Professions Committee. He represents the 69th Assembly district, which covers Santa Ana, Garden Grove and Anaheim.